Monday, January 1, 2018

President Trump was off base Friday when he implied that Amazon has a sweetheart deal with the U.S. Postal Service.

But for reasons unrelated to Trump's' charges, it may be time for the USPS to rethink the prices it charges Amazon and perhaps for all package deliveries. In fact, there’s evidence the Postal Service is already doing that.

While containing no outright falsehoods, Trump’s tweet is a mix of truth and debatable claims.

Let’s take apart his claims:

• The USPS is “losing many billions of dollars a year”: Officially, that’s true, but only because the Postal Service is indirectly subsidizing the federal government via prepaid retiree health benefits and by paying more than its share of combined federal/USPS pension costs. Absent those accounting gimmicks, the Postal Service has operated at about breakeven the past few years.

• The USPS “is charging Amazon and others so little to deliver their packages”: True, but it's a non-issue. The USPS is generally able to charges the lowest rates for residential parcel deliveries it's the low-cost provider.

• “Making Amazon richer”: The Postal Service’s moves to gain a larger share of the residential package market have definitely benefited Amazon – and plenty of others who ship packages. Competition tends to do that. It's called capitalism.

• The Amazon deal is making the USPS “dumber.” Not likely. The USPS can learn from Amazon’s sophisticated approach to logistics.

• The Amazon deal is making the USPS “poorer.” Not according to the Postal Regulatory Commission, which vets package-delivery rates, including those negotiated privately by the likes of Amazon, to ensure they are profitable for the Postal Service.

Trump isn’t the first to question the low postage rates Amazon pays. Various commentators, special-interest groups, and others have raised the issue from time to time.

Challenges to the Amazon deal fall into three categories: the “sweetheart deal” argument, the “unfair competition” argument, and our own Dead Tree Edition observations.

The “sweetheart deal” argument
Those who claim Amazon negotiated too sweet a deal with the Postal Service naively point to estimates that its postage rates are well below those paid by mom-and-pop shippers. A Wall Street Journal op-ed written by the head of “a money-management firm that owns FedEx common stock” (Hmm, any bias there?) typifies the muddled thinking:

“The U.S. Postal Service delivers the company’s boxes well below its own costs,” wrote Josh Sandbulte, who estimated that the USPS handles about two-thirds of Amazon’s U.S. deliveries. “Select high-volume shippers are able to drop off presorted packages at the local Postal Service depot for “last mile” delivery at cut-rate prices. With high volumes and warehouses near the local depots, Amazon enjoys low rates unavailable to its competitors.”

In other words, Amazon goes to great expense to minimize the USPS’s costs of delivering Amazon packages; in return, Amazon pays lower postage rates. Such “worksharing” discounts are a standard, and quite logical, part of most postage rates: The more you do to reduce the Postal Service’s costs – via sorting, dropshipping, efficient packaging, etc. – the lower your postage bill.

Amazon presented the chart below to the PRC early this year in defense of its low rates, saying it “has established a transportation and distribution network of more than 25 sort centers and more than 70 fulfillment center warehouses. This network enables Amazon to inject parcels at Postal Service Destination Delivery Units (“DDUs”) already presorted for delivery to the customer.”

“This arrangement," Amazon says, benefits the Postal Service by letting it make more efficient use of its delivery facilities, equipment and personnel while avoiding the costs of building additional capacity in the Postal Service’s upstream network.”

The “unfair competition” argument

FedEx itself, along with fellow USPS competitor United Parcel Service, has a more sophisticated argument – that parcel shippers aren’t paying their fair share of the Postal Service’s costs.

Imagine that a letter carrier delivers four pieces of mail and one Amazon package to a particular address. The “fair-share” camp says that at least 20% of the labor, fuel, and other costs required to make that delivery should be assigned to the package.

But the USPS only looks at the incremental costs of delivering packages and other “competitive” products. For example, the labor and fuel required to drive to the mailbox are not factored into the cost of (or price for) delivering the package because those costs would exist even if the carrier were only delivering the letters.

The result, say USPS’s competitors, is that the Postal Service undercharges package shippers while overcharging those who send letters and other traditional mail. But the PRC sides with the USPS.

Dead Tree Edition's observations
The USPS-PRC approach to pricing isn’t just consistent with the law, it's good business practice.When evaluating a product, the question is whether the organization would be more profitable without the product than with it. That means ignoring any costs that would remain if the product were discontinued.

But the USPS-PRC approach has a couple of shortcomings.

Because its tiny 30-year-old delivery vehicles were designed primarily with letters in mind, the Postal Service is increasingly relying on parcels-only delivery routes to cope with the e-commerce boom. That’s driving up the average cost of delivering a parcel.

But setting postal rates is a bit like driving while looking in a rear-view mirror: Projections are based on elaborate analyses of historical data – in this case of a time when most parcel deliveries could easily be piggybacked onto regular mail routes. It’s also unlikely that the Postal Service’s current cost models fully reflect the increasing amount of real estate devoted to sorting and handling parcels.

And it’s well-nigh impossible for those models to factor in opportunity costs.

The USPS’s deals with Amazon have been based on the premise that most of the additional deliveries would be done by city carrier assistants (CCAs), whose compensation is less than half that of career letter carriers. The labor contract with the National Association of Letter Carriers caps the number of CCAs the USPS can hire, while allowing additional ones to be brought on for non-traditional ventures like the Amazon deals.

But, contrary to its expectations, the Postal Service has struggled to hire, train, and retain the full complement of CCAs. The parcel boom has also meant plenty of work – and overtime -- for CCAs and career carriers alike.

Under these conditions, the Amazon deal is sucking up a limited resource: inexpensive (about $17/hour) CCA labor. That deprives the Postal Service of the cost-reducing opportunity to use more straight-time CCA hours on non-Amazon deliveries.

Here’s a hint that the Postal Service may be wising up to such hidden costs: A small experimental venture that had CCAs delivering groceries for Amazon Fresh apparently collapsed recently. One reason, Recode reports, is that “Amazon balked at new delivery rates USPS was going to charge the company.”

"The bottom line is whether the USPS would be better off without Amazon than with it."

Still, Amazon pays the U.S. Postal Service billions of dollars annually – probably well over 10% of the agency’s total revenue. The bottom-line question is whether the Postal Service would be better off without the current Amazon deal than with it. The answer is neither the clear "no" that Trump and other critics would have us believe, nor the clear "yes" indicated by the PRC’s rulings.

Sunday, November 19, 2017

Rarely do I publish a post that's solely about another article, but I'm recommending that anyone who works or is involved in the printing industry read this eye-opening piece by my cyber-friend Deborah Corn, The Ugly Truth of Print Shows, Penises and #MeToo.

You probably won't see it in the usual printing-industry publications or on their web sites. They're not known for publishing headlines that contain "penis."

I've met a few dickheads who work in the printing industry, but I had no idea it was populated by so many sickos. And from what I've seen of the responses to it so far, it's "eye opening" only to men: Women who work in the business are all too aware of this filth.

A couple of observations:

1) The printing industry is struggling to attract fresh blood into the business. It's no wonder. From what I've seen of people who were born in the 1990s, this sort of "good old boy" behavior isn't tolerated by today's young women and repulses most young men as well.

2) I hope more women in printing will jump on the #MeToo bandwagon. And I can't wait to see what happens when they move on to #BalanceTonPorc (French for "squeal on your pig"), or its more prosaic English hashtag, #NameNames.

Monday, October 2, 2017

The U.S. Postal Service recently made a quiet change that will cause retirement to look sweeter for thousands of postal workers.

Pension estimates the USPS provides to employees who are considering retirement now include an amount for the FERS (Federal Employees Retirement System) supplement, reports Don Cheney, an APWU official with a long history of helping fellow union members understand their retirement benefits. The Postal Service has not announced the change.

“According to the responses I’ve received on Facebook, numerous
employees are getting the new FERS annuity estimates with the supplement
amount listed,” Cheney says. He provided a sample statement from one
employee who would receive more than $15,000 annually – nearly equal to
her regular annuity.

The supplement is meant to take the place of Social Security until USPS retirees turn 62, when actual Social Security payments kick in. Usually, a postal worker needs to be at least 55 with 30 years of service to qualify for the supplement. About 85,000 postal workers have 30 or more years of service.

As Dead Tree Edition has reported previously, ignorance of and uncertainty about the FERS supplement have hindered response to USPS early-retirement offers. In a VERA (Voluntary Early Retirement) campaign, the minimum years of service to receive a VERA supplement drops to 20.

That could have been a huge incentive for some employees to retire early -- except that they typically were not told how much the supplement would be, or even if they were eligible, until after they submitted their request to retire.

But the era of big VERAs seems to be over. Instead of having too many employees, the downsized Postal Service now struggles to handle the rising tide of package deliveries while keeping deliveries on time and overtime under control. And there don’t seem to be any major productivity improvements on the horizon that would make it easy to eliminate more positions.

In theory, retirements enable the Postal Service to save money by replacing high-paid career workers with part-timers who gets much lower pay and few benefits. But union contracts limit the number of such non-career employees.

And with the recent trends of low unemployment rates and rising part-time wages, the Postal Service has struggled to recruit and retain non-career workers, especially in markets that have a high cost of living.

“The shortage of clerks and carriers has reached a critical point in almost every post office,” Cheney said. “I expect a massive failure of service standards during the Christmas rush.”

Saturday, August 26, 2017

The U.S. Postal Service is planning to raise virtually all rates a bit in January, apparently including a one-cent hike of the Forever Stamp, to 50 cents. And it’s also hoping it will soon get the power to implement larger rate hikes.

The USPS will raise rates for both market-dominant mail (such as First Class and Marketing Mail) and competitive mail (such as Priority Mail) on Jan. 21, 2018, postal officials told mailing-industry representatives this week.

The average rate increases for market-dominant classes are limited by an inflation-based cap, currently close to 2%. A postal official indicated that rates would rise from 1% to 3% for most market-dominant products, according to attendees at a meeting of the Mailers Technical Advisory Committee.

Postal officials didn’t spell out what any of the new rates would be. But a statement that the increase for letter mail would be about 2% almost certainly means that the price of the popular Forever Stamp for First Class letters will rise from 49 cents to 50 cents (a 2.04% hike).

The new rates for flat Marketing Mail and Periodicals would provide greater incentives to create efficient mailings, which is good news for catalogs and magazines that are co-mailed, as well as for printers that provide co-mail services. But it means higher-than-average rates for small publishers that don’t take advantage of such mail-consolidation programs.

The USPS is most likely to file the new rates with the Postal Regulatory Commission in October. As long as the PRC determines that the USPS proposal meets certain standards, such as not violating the price caps, the new rates will take effect without modification.

Next month, the PRC is slated to announce the results of its 10th anniversary review of the law that created the price cap. If it determines that the law’s system for regulating market-dominant rates is not meeting the law’s objectives, the PRC can modify or replace the system.

Postal officials argue that, because the system fails to meet the objective “to assure adequate revenues . . . to maintain financial stability,” the PRC should loosen or eliminate the price cap. But a significant PRC overhaul of the rate-making rules would probably lead to legal challenges that could delay implementation of any changes.

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